by Jeffrey Saut, Chief Investment Strategist, Raymond James
November 1, 2010
“Tornadoes, violent thunderstorms, and torrential rains swept through a large portion of the nation's midsection yesterday, thanks to the strongest storm ever recorded in the Midwest. NOAA's Storm Prediction Center logged 24 tornado reports and 282 reports of damaging high winds from yesterday's spectacular storm, and the storm continues to produce a wide variety of wild weather, with tornado watches. The mega-storm reached peak intensity late yesterday afternoon over Minnesota, resulting in the lowest barometric pressure readings ever recorded in the continental United States, except for hurricanes and nor'easters affecting the Atlantic seaboard (last week’s hurricane-like Midwest storm shown below).”
... Wunderground Blog, by Dr. Jeff Masters, 10/27/10
Droughts in Russia and China have destroyed 30% of Russia’s grain crops. The same drought has caused 30-foot deep “cracks” to appear in the farmlands north of China’s Inner Mongolia Autonomous Region, keeping farmers out of the fields (read: food shortages). Meanwhile, other parts of China are experiencing floods, and mudslides, of historic proportions. Ditto Pakistan, where monsoons have displaced some 20 million people and caused huge crop losses. A few weeks ago, some parts of Wisconsin had three feet of water in the streets, a late-season Hurricane (Earl) flooded our country’s Northeast corridor, New York City experienced its hottest summer on record, punctuated by a microburst containing 125 mph winds, hot weather left the temperature in Los Angles at 114° two weeks ago, and a heat wave sparked the Fourmile Canyon fire near Boulder, Colorado. I could go on, but you get the idea, the weather has turned undeniably weird.
In past missives I have commented that while to some degree the environmentalists are right about the climate change being attributable to “man,” this year’s weather is being compounded by a La Niña weather pattern coupled with huge amounts of volcanic ash in the atmosphere. That combination has allowed “The Tropics” to expand toward the “poles.” Accordingly, the Hadley cell winds have shifted outwards. Recall, the Hadley cell winds dominate the tropics, carrying hot equatorial air up into the troposphere where atmospheric circulation carries it North and South. The air eventually sinks back to Earth around the 30° longitudes. Where the air rises, the atmospheric pressure is low, causing heavy rains and storms (tropical). When it sinks, it produces high pressure areas characterized by deserts like the Australian outback. Once the air becomes earthbound it flows back toward the equator. Unsurprisingly, the Hadley cell winds’ outward shift has played havoc with the Trade Winds, producing droughts in otherwise moist parts of the world and monsoons in previously dry locales. Said “shift” has allowed tropical zones, and deserts, to expand dramatically. This is not an unimportant event because the changed weather pattern has major implications for agriculture and the world’s soil bank.
Currently, much of the world’s topsoil is eroding and therefore declining in nutrient quality. According to wiseGEEK:
“Topsoil is the upper surface of the Earth's crust, and usually is no deeper than approximately eight inches. The Earth's topsoil mixes rich humus with minerals and composted material, resulting in a nutritious substrate for plants and trees. It is one of the Earth's most vital resources.”
Unfortunately, topsoil erosion is occurring much faster than nature can replace it. In addition to weather, modern agriculture techniques have hastened the erosion, as has row crop planting (corn, soybeans, cotton, tobacco, etc.) since row crops erode soil much faster than sod crops. Regrettably, once soil is gone you can’t get it back! Plainly, this has grave implications because as I have stated for years, “When per capita incomes rise the first thing people want is clean water, the second is a better diet.” With per capita incomes rising rapidly in emerging countries the burgeoning food demand has left global grain consumption exceeding production; and, over the next few decades the situation is likely to get worse because food production needs to expand by some 50% just to meet the estimated demand. Ladies and gentlemen, this means an additional ~6 billion acres of land is needed to meet the upcoming food demand, but only ~2 billion acres of good land is available. Obviously, that should make farmland a good investment and there are select public companies that play to this theme. Also of interest are ag-centric “technology” companies that hopefully can ameliorate some of the upcoming food shortfall. Companies like Monsanto (MON/$59.42) and Deere & Co. (DE/$76.80), which are followed by our research affiliates, are constantly searching for innovative solutions to the dilemma.
